Use access key #2 to skip to page content.

Time to shut down the US Federal Reserve?

Recs

54

June 29, 2010 – Comments (20)

I have been trying to stick to blogging more about specific long and short stock ideas instead of whining about the economy and government lately, but this really got my goat.  It is absolutely astonishing to me how pompous and arrogant the people at the U.S. Federal Reserve are.  For me, the absolute last straw was the release of the minutes from a 2004 Fed meeting where Alan Greenspan was quoted as saying the following:

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand."

Oh really?  I'd love to see what would have happened if you hadn't fully understood exactly what was going on.  Thanks for protecting the unwashed masses like myself from certain economic destruction. Wait a minute...aren't you one of the people who is most responsible for the massive real estate bubble and subsequent implosion that we all have been forced to endure?  Good grief.

Today I came across another gem of a statement by a Fed official.  This one comes from Kartik Athreya, senior economist for the Richmond Fed.  Mr. Athreya has written a paper on how people who blog about the economy are as Ambrose Evans-Pritchard puts it "chronically stupid and a threat to public order."  

Here's what Kartik says in his paper, supposedly verbatim (I say supposedly because I have not actually seen the report, but the source is reputable):

 “Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy.”

“The response of the untrained to the crisis has been startling. The real issue is that there is an extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.”

“Economics is hard. Really hard. You just won’t believe how vastly hugely mind-boggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but that’s just peanuts to economics. And because it is so hard, people shouldn’t blithely go shooting their mouths off about it, and pretending like it’s so easy. In fact, we would all be better off if we just ignored these clowns.”

The fools at the Federal Reserve, including the mighty chief economist for the Richmond Fed, have destroyed any remaining credibility the field of economics had left.  Most paid economists are completely worthless.  One would be better off putting a bunch of monkeys in a room with darts and letting them guess where the economy is headed.

I love Ambrose Evans-Pritchard's rant on this subject in today's Daily Telegraph:

Time to shut down the US Federal Reserve?  

The current generation of economists have led the world into a catastrophic cul de sac. And if they think we are safely on the road to recovery, they still fail to understand what they did.

Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour.

They ran ever-lower real interests with each cycle, allowed asset bubbles to run unchecked (Ben Bernanke was the cheerleader of that particular folly), blamed Anglo-Saxon over-consumption on excess Asian savings (half true, but still the silliest cop-out of all time), and believed in the neanderthal doctrine of “inflation targeting”. Have they all forgotten Keynes’s cautionary words on the “tyranny of the general price level” in the early 1930s? Yes they have.

They allowed the M3 money supply to surge at double-digit rates (16pc in the US and 11pc in euroland), and are now allowing it to collapse (minus 5.5pc in the US over the last year). Have they all forgotten the Friedman-Schwartz lessons on the quantity theory of money? Yes, they have. Have they forgotten Irving Fisher’s “Debt Deflation causes of Great Depressions”? Yes, most of them have. And of course, they completely failed to see the 2007-2009 crisis coming, or to respond to it fast enough when it occurred...

And now the Fed tells us all to shut up. Fie to you sir.

The 20th Century was a horrible litany of absurd experiments and atrocities committed by intellectuals, or by elite groupings that claimed a higher knowledge. Simple folk usually have enough common sense to avoid the worst errors. Sometimes they need to take very stern action to stop intellectuals leading us to ruin.

The root error of the modern academy is to pretend (and perhaps believe, which is even less forgiveable), that economics is a science and answers to Newtonian laws... 

As for the Fed, I venture to say that a common jury of 12 American men and women placed on the Federal Open Market Committee would have done a better job of setting monetary policy over the last 20 years than Doctors Bernanke and Greenspan.

Actually, Greenspan never got a Phd. His honourary doctorate was awarded later for political reasons. (He had been a Nixon speech-writer). But never mind. 

While most people know that the Federal Reserve recently released the official minutes of its meetings during the Greenspan era, what many people don't know is that these meetings were actually videotaped as well.  The following is just released footage of an actual Federal Reserve policy meeting:

 

Deej

20 Comments – Post Your Own

#1) On June 29, 2010 at 4:36 PM, ocsurf (< 20) wrote:

We are WAY overdue in ending the Fed! If there were only more Ron Paul supporters.

Report this comment
#2) On June 29, 2010 at 4:53 PM, XMFSinchiruna (27.78) wrote:

Deej,

In your present frame of mind, may I respectfully recommend a short trip through the GATA archives as they relate to historical Fed minutes and evidence of impropriety with respect to managing the gold markets in order to manage currencies?

This will get you started.

Happy reading. :)

C

Report this comment
#3) On June 29, 2010 at 6:31 PM, Dobbes (< 20) wrote:

I'm of the unpopular opinion that we need the Fed.  I know they don't do the best job, but at least Congress isn't deciding interest rates.  The lost decade of Japan has taught us what happens when there is too much political tie-in with the central bank.

Report this comment
#4) On June 29, 2010 at 7:19 PM, outoffocus (22.86) wrote:

The lost decade of Japan has taught us what happens when there is too much political tie-in with the central bank.

And we don't have that now?

Report this comment
#5) On June 29, 2010 at 7:25 PM, rofgile (99.30) wrote:

If that mans comments are true -

 (“Economics is hard. Really hard. You just won’t believe how vastly hugely mind-boggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but that’s just peanuts to economics. And because it is so hard, people shouldn’t blithely go shooting their mouths off about it, and pretending like it’s so easy. In fact, we would all be better off if we just ignored these clowns.”),

I think he is an egotistical idiot.  Yes, economics is a complicated.. field.. (I can't bring myself to call it a science).  But, there are lots of very smart people out there, not all who have PhDs, who probably "get it".  And there are many PhDs in economics who don't get it.  This field seems to be one of the most circular and confused out there.  Economics PhDs keep raising armies of foolish MBAs, often educated with out of date and completely incorrect theories.  

-> You should read this old paper "The Variation of Certain Speculative Prices" - this mathematician disproves the whole risk theories that are still mainstream economics - especially for options pricing (which was proved very wrong with the LTCM fiasco).  Didn't those LTCM guys have Nobel Prizes in economics?  Yeah.. 

 -Rof 

Report this comment
#6) On June 29, 2010 at 7:30 PM, Dobbes (< 20) wrote:

No outoffocus I don't see Congress as having the ability to interfere with the Fed's discretion to raise interest rates so they can  refinance sovereign debt at artifically low rates in perpetuity.

Report this comment
#7) On June 29, 2010 at 7:48 PM, Milan10 (< 20) wrote:

I only hope that enough Americans wake up to the fact that the Federal Reserve is a private corporation and does not serve the people, but the shareholders' interests.  These shareholders make Bill Gates look like a pauper.  My school (VCU) sponsored a "Day At the Fed" event which I attended.  Arethya was there and so was Jeff Lacker, the president of the Richmond Fed.  I have heard these people tell lie after lie in front of my face.  When we asked them questions, they subtly told us the same thing that's the highlight of this article: "You're not smart enough to understand economics."  I have a minor in Economics and I can safely say Finance (my major) is doubly harder academically and professionally.  At the conclusion of the "Day at the Fed," we were provided with a reading material written by the Fed.  It plainly states that the Fed is a private corporation and how it's structured.  I can even provide citation and proof of this fact, but noone would believe me.  I think it's up to the people to educate themselves and revolt.   

Report this comment
#8) On June 29, 2010 at 7:49 PM, angusthermopylae (39.45) wrote:

In fact, we would all be better off if we just ignored these clowns

Yet, I recall some of these "clowns" (or "Fools") were predicting pandemonium in the markets waaayy before the economists were asking the question "How did we miss the collapse?"  (dwot;  outoffocus; Deej; sinch;floridabuilder versions 1, 2, and 3; many many more)

As one of those unwashed masses who can't keep his mouth shut, I've got to say that the scorecard seems heavily weighed against the professionals.

But what do I know?  I'm apparently bent on destroying consumer confidence and stealing yo mama's apple pie....

Report this comment
#9) On June 29, 2010 at 8:33 PM, portefeuille (99.59) wrote:

#5

Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula

Against VAR

Black Swans and the Domains of Statistics (pdf)

 

Report this comment
#10) On June 29, 2010 at 9:15 PM, Tastylunch (29.20) wrote:

considering author of said paper lasted a mere 8 months in the IB world before getting sacked

 I could see why he thinks Economics is hard. :)

Report this comment
#11) On June 29, 2010 at 10:50 PM, ralphmachio (24.78) wrote:

Milan10 Ok, So Who are the private owners who make Gates look like a pauper? 

Report this comment
#12) On June 29, 2010 at 11:04 PM, starbucks4ever (97.18) wrote:

Economics is one of the easiest fields ever. The people at the Fed say it's difficult because they are simply trying to protect their jobs from the millions of (relatively) bright high school dropouts each of whom can do the same or better job managing the US economy for only $7 an hour.

Report this comment
#13) On June 29, 2010 at 11:16 PM, whereaminow (< 20) wrote:

Dobbes,

I notice that in your comment you do not address whether the Executive branch has any influence over the Fed.  Not only is this readily admitted by Fed apologists (the same ones who, out of the other corner of their mouth, claim that it is independent), but I dealt with the myth of Fed independence here.

Has the Federal Reserve ever acted independently in its monetary decisions before?  Nonsense. 

"By law, the Fed is independent. The president and Congress can do no more than name its seven governors, including the chairman. The governors share responsibility for monetary policy with presidents of the 12 reserve banks which are supervised by the board; these presidents are appointed by their banks’ boards and confirmed by the governors." - The Economist, Shill Magazine of Statist Propaganda

Would you consider Federal Express to operate independently of government if it's CEO and Regional Vice Presidents were chosen by the President and Congress?  How about McDonald's?  Walmart?  Betty's Trinket Shop on 4th Street?  

"By law, Betty's Trinket shop is independent. The President and Congress can do no more than name it's three shift supervisors, its manager, and owner.  Those people share responsibility for designing and marketing the trinkets with other employees which are supervised and appointed by the shift supervisors, manager, and owner." - Shill State Magazine

See how independent Betty's Trinket Shop is?!  Wow.  I feel dumb.  

David in Qatar

Report this comment
#14) On June 29, 2010 at 11:26 PM, ChrisGraley (29.74) wrote:

I agree that economics is pretty easy. I took to it at about age 10, but for Liberals, some of the most basic economic staples seem like a foreign language.

I'm not trying to be condescending, I'm just trying to understand why they don't understand. 

They seem to be intelligent about other things, but they also seem to be economically impared.

On the same note, I'm not buying the whole "climate science is difficult" thing. That only seems to be used when someone else has a different opinion and the proof to go with it. 

 

Report this comment
#15) On June 30, 2010 at 12:56 AM, alberta911 (75.27) wrote:

Shut down congress...shut down the Senate..shut down all the corrupt agencies from the SEC to MMS

 

After all of the above are shut down then and only then would I look to shut the fed down

Report this comment
#16) On June 30, 2010 at 1:20 AM, Harold71 (22.89) wrote:

Kinda funny after awhile...and yes the title is "arrogant."  The message isn't.  

Report this comment
#17) On June 30, 2010 at 9:41 AM, StatsGeek (29.19) wrote:

"I'm of the unpopular opinion that we need the Fed.  I know they don't do the best job, but at least Congress isn't deciding interest rates."

The implicit assumption here is that either Congress or the Fed controls interest rates.  If those were the only 2 choices, I would agree that it is better to have the Fed do it.

THE MARKET SHOULD CONTROL INTEREST RATES, not the Fed or Congress.  Read "End the Fed," by Ron Paul.  The idea of a centrally planned economy, Soviet-style, is widely understood to be a system that does not work.  Why is it so hard for people fathom that the market for money should not be centrally planned but determined by market instead?

Report this comment
#18) On June 30, 2010 at 10:29 AM, Gemini846 (57.52) wrote:

These guys sound like the 15th century Catholic Church. The motion of heavenly bodies is too complicated for you farmers to understand. Forget how you've been using the sun for thousands of years to till fields and plant crops. What would you know about it.

Funny how the simplist answers are usually the truth.

Report this comment
#19) On June 30, 2010 at 11:39 AM, TDRH (99.65) wrote:

For the fed not to realize that the lending standards of the banks they were loaning to would lead to widespread default is criminal.   Yet there are no perp walks.

Report this comment
#20) On July 02, 2010 at 1:31 PM, nzsvz9 (< 20) wrote:

End the Fed.

Welcome to the team.

Known as Fed-Basher nzsvz9

Report this comment

Featured Broker Partners


Advertisement